Quarterly Disciplinary Review - Spring Issue/March 2004
The Office of General Counsel (OGC) of NASD Regulatory Policy and Oversight publishes the Disciplinary Update to provide registered representatives with a summary sampling of recent disciplinary actions involving misconduct by registered representatives. The sample of disciplinary actions includes settled matters and decisions in litigated cases (Hearing Panel and National Adjudicatory Council (NAC) decisions).
OGC chose the particular actions summarized below to call attention to, and remind registered representatives of, specific conduct that violates NASD Rules and will result in disciplinary action. This document is not intended to replace or supplement the disciplinary information and decisions contained on the NASD Web site (www.finra.org). The decisions and settlements referenced in this document are subject to the restrictions regarding the release of disciplinary information contained in IM-8310-2 in the NASD Manual.
Borrowing Customer Funds
- Registered Representative Suspended and Fined for Borrowing Customer Funds and Recommending Unsuitable Mutual Fund Liquidations - NASD settled a matter involving a registered representative who borrowed more than $30,000 from a customer in direct contravention of his employer firm's policies, persuaded the customer to loan him the money by offering a nine percent return on the loan, and recommended that the customer liquidate two mutual funds in order to loan the money to the representative. NASD found that the representative did not have reasonable grounds for believing that his recommendations and the resultant transactions were suitable and that the representative violated NASD Rules 2110 and 2310. NASD suspended the representative in all capacities for 90 days and fined him $10,000.
Failure to Disclose on Form U4
- Registered Representative Suspended and Fined for Failing to Disclose Material Information on a Form U4 - NASD settled a matter involving a registered representative who failed to disclose on a Form U4 that he had been arrested for and charged with the felonies of attempted grand larceny and attempted criminal possession of stolen property. NASD found that the representative violated NASD Rule 2110 and IM-1000-1, suspended him in all capacities for two years, and fined him $5,000. Additionally, since the settlement included a finding that the representative willfully failed to disclose material facts, under the Securities Exchange Act of 1934, the representative may be statutorily disqualified from the industry.
Failure to Appear Before NASD for Testimony
- Registered Representative Barred for Failing to Appear to Testify On-the-Record Before NASD - NASD settled a matter involving a registered representative who refused to appear for on-the-record testimony before NASD. The representative's attorney advised NASD that the representative would not appear to testify. NASD found that the representative violated NASD Rules 2110 and 8210 and barred the representative from associating with any member firm in any capacity.
Private Securities Transactions
- Registered Representative Fined and Suspended for Participating in Private Securities Transaction without Notice to or Approval from Member Firm - NASD settled a matter involving a registered representative who participated in a private securities transaction without providing notice to or obtaining approval from his employer firm. The registered representative referred a customer to an officer of an issuer to purchase common stock directly from the issuer rather than through the representative's employer firm. NASD found that the representative violated NASD rules, suspended him in all capacities for six weeks, and fined him $5,000.
Regulation T Violation
- Registered Representative Suspended, Fined, and Required to Requalify for Causing Firm to Extend Him Credit and Purchasing Securities with Funds from the Sales of the Same Securities - The NAC found that a registered representative who caused his firm to extend him credit in violation of Regulation T and purchased securities that were paid for by the sale of the same securities violated Section 7(f) of the Exchange Act and NASD Rules 2110 and 2520. The NAC rejected the representative's attempts to shift the blame for his illegal day trading to his firm's procedural inadequacies. The NAC suspended the representative in all capacities for 30 days, required him to requalify, fined him $5,000, and imposed costs.
- Registered Representative Fined and Suspended for Opening Customer Accounts and Effecting Transactions without Authorization - The NAC found that a registered representative violated NASD rules when he opened three customer accounts without authorization and effected IPO transactions in those accounts without the customers' knowledge or authorization. The NAC suspended the representative in all capacities for four months, fined him $20,000, and imposed costs.